What is the First Time Home Buyer Credit?

CLICK HERE TO SEE THE OFFICIAL UPDATE ON THE FIRST TIME HOME BUYER CREDIT.

Well, credit is probably not the best word but that is what people are running with.  It is actually an interest free government loan.  Yes, you do have to pay it back over time.  After 2 years you start paying it back at $500 per year for 15 years.  Not the worst news I’ve ever heard (INTEREST FREE!!) but I can sprinkle it with a little more good news.  I’ve heard from some very reliable sources that a bill has been introduced where this would not have to be paid back at all.  Wow!  Again, it looks good but as of today you do have to pay it back.  With this or any other idea you think would greatly benefit you try to contact your representative and make your voice heard.  Here are some of the specifics on the credit:

1. THE CREDIT HAS CHANGED AND MANY OF THE RULES BELOW UPDATED.  CLICK HERE TO SEE UPDATED VERSION.
2. It is an interest free government loan, not a credit.  It is the lesser of 10% of the purchase price or $7,500.  Another way to put it is it is 10% of the purchase price not to exceed $7,500.
3. Definition of a first time home buyer—No home ownership in a principal residence in the U.S. during the 3 year period (counted by 36 months) before the purchase of the home to which the credit applies.
4. Short Window of Opportunity—it is for home purchases after April 8, 2008 and before July 1, 2009.
5. For existing homes, all dates measured from closing date.  For new construction, from date of occupancy (move in.)
6. Refundable Credit—paid to taxpayers who owe no tax or the amount of the credit that exceeds the amount they owe.
7. There are High Income Tax Limitations—total credit for up to $75,000 for those filing single & $150,000 for those filing joint.  There is a phaseout on the credit meaning if you make more you will receive a smaller portion of the credit and if you exceed the max income than you don’t qualify.  Here are the ranges:
   1. Single:  $75,000-95,000.
   2. Joint:  $150,000-170,000.
   3. These are all based on Modified Adjusted Gross Income.

   Example, if a married couple has an income of $165,000 their credit would be reduced by 75%.  Click here and go to question #5 to see this in greater detail.

8. Recapture or “Repayment”—15 years beginning the second year after the purchase.  So, $500 a year for 15 years starting 2 years after your purchase.
9. Accelerated Recapture or “Repayment”—due in full in the year the home is no longer your principle residence.  Basically if you sell it, move out or rent it out you will have to repay the entire credit.  The amount of the accelerated recapture is limited to gain on sale, if any.  Exceptions to the accelerated recapture are allowed for divorce, death and involuntary conversion.  Again, we’re hoping they pass the bill that will require NO REPAYMENT.
10. You can move a 2009 home purchase to your 2008 tax return by tax election.  Talk to your accountant!
11. There is no program on the state level (I’m talking Illinois.)

There are more details and you should talk to your accountant to make sure they are fully aware of this is you are a first time home buyer.  Pay attention to the dates and the points above and you’re off to a great start.  You’re Real Estate Agent should be aware of the basics of this credit and get you off to a great start but when it comes to doing your taxes always double check your work and the advice given to you by anyone other than who does your taxes.  Let me know if you have any questions….get out there and buy, especially you first timers!!  For those first time home buyers don’t forget that Chicago and many of the suburbs will have extra costs such as transfer taxes. Chicago’s is the most popluar and discussed but many of the ‘burbs have them as well.